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Declining Revenues Result in CA$578 Million Losses for Canopy

Canada’s move to federally legalize recreational cannabis was exciting news for cannabis retailers across North America. In an effort to kill the street market and attract customers to legal, regulated establishments, cannabis corporations raced to drop prices, investing primarily in low-margin value flower and selling at competitive rates. However, nearly four years later, major cannabis retailers like Canopy Growth Corp. are rapidly downsizing and seeing major revenue losses. Their attempt to monopolize the legal Canadian market is failing, and their moves in the United States are falling apart as well, begging the question: where is the legal industry headed in the coming years?

The Pitfalls Of The Green Economy 

Canopy Growth, the Smiths Falls, Ont.-based cannabis firm behind Tweed, Doja, and Ace Valley, reported net revenue of $111.8 million in its fourth quarter, down from $148.4 million the previous year.

The company’s global cannabis net revenue plummeted 35% year over year to $66 million in the third quarter. This included a 36% dip in recreational cannabis sales to $39 million and a 33% drop in medical cannabis and associated goods like edibles sold in Canada to $27 million.

The company’s chief financial officer, Judy Hong, attributed the results to the company’s push toward premium items, which she described as inevitable in the long run due to price compression and a shift in consumer tastes.

“We deliberately chose to not chase low-margin value flower sales and for a cannabis company transitioning your product mix can be challenging,” she told analysts on a call.

“Had we continued to focus resources on actively pursuing low-margin value flower sales, our Canadian recreational cannabis business would have delivered significantly stronger revenue in fiscal ’22, but at the expense of doing what was right, which was putting our Canadian cannabis business on a path to sustainable growth and profitability.”

Canopy’s strategy to choke out the street market seems to have worked, and now that they feel confident in their market monopoly, they’re willing to suffer some temporary losses in order, it seems, to gouge prices in the future.

C.R.E.A.M Of The Crop? 

Still, we’re several years away from the eventual market domination of this Canadian cannabis giant, and Canopy needs to make and save money now. Canopy updated its forecasting methods to ensure it is more agile in altering production to prevent inventory write-offs, according to Hong. In its most recent fiscal year, Canopy reported inventory writedowns of roughly $120 million.

Wage inflation and increased supply chain costs may offset some of the savings from better forecasting, but Hong said Canopy is still confident in its ability to save $30 million to $50 million over the next 12 to 18 months. The cost-cutting approach to make cannabis farming more economical, as well as supply chain efficiency, will allegedly account for a large portion of the savings. Retooling facilities, revising procurement strategies, establishing flexible production processes, and lowering third-party professional and administrative fees are all part of the plan as well.

However, the way Canopy’s CFO discusses this implies that they haven’t made cost-reduction efforts as of yet, which is simply false. In fact, the struggling business slashed 8% of its workforce – or 245 of its employees. Since David Klein took over as CEO, over 1,600 people have lost their jobs. Despite laying off over 50% of its workforce since 2020, Canopy continues to bleed money.

“To realize profitability and power growth, we are taking critical actions to further evolve Canopy Growth into an agile organization with a clear focus on the areas where we have the greatest potential of success,” Mr. Klein said. These areas of success, it seems, include the potential acquisition of Acreage Holdings. Acreage Holdings is no stranger to shady business practices: in fact, they’re currently being sued in the United States for $600 million. Board member John Boehner is also in the midst of ongoing litigation with a separate party, which alleges that Boehner is using proprietary materials for profit.

Canopy’s desire to acquire Acreage can only be described as shady, and their efforts to incorporate major cannabis retailers, distributors, and growers speak to their growing desire to monopolize the market.

Not only have they almost completely eradicated the Canadian street market, but by monopolizing North American cannabis, they have the ability to set prices. We’ve seen this in the past with companies like Uber, who enticed customers with cheap rides, nearly killed municipal taxi companies, and then decided to price-gouge.

Canopy, if allowed, seems to be heading in this direction, creating a dangerous situation for the cannabis economy.

 


 

Canopy’s strategy initially involves them losing money, yes, but this is fairly common practice for corporations who wish to eventually monopolize the market. Like Uber or Amazon, Canopy is fixing to be the cannabis retailer, gaining the ability to determine prices and wholly control the market. Their layoffs and revenue losses are part of a far more nefarious strategy that will cut jobs, raise recreational prices, and could potentially irreparably damage the cannabis industry in North America. The intersection of “free-market” capitalism and cannabis is proving to be a dark future for stoners, growers, and retailers alike.

Hopefully, Canopy does not succeed in their Acreage acquisition and their endeavor to monopolize the market. This is one of the consequences of legalization cannabis advocates have been warning against for years, and it’s sad to see our worst nightmares begin to come to light. Weed is the herb of the people, and it should stay that way.

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